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| ISBN-13: | 9780817983536 |
|---|---|
| Publisher: | Hoover Institution Press |
| Publication date: | 11/07/2019 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 348 |
| File size: | 4 MB |
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CHAPTER 1
Market and Plan: Typology of Plan Models
Market and Plan
The purpose of an economy is to apportion the scarce resources of land, labor, capital, and entrepreneurship among competing alternative uses, both private and public. The institutional structure of the economy should be such that it produces a set of goals to be achieved and allocates resources to the chosen goals. This structure is comprised of four major institutions: information, coordination, property, and motivation.
Information is the continuous generation, transmittal, and processing of intelligence about resources and goals, supply and demand (costs and utilities), in the economy. Coordination is the reconciliation and harmonization of disparate pieces of information into a coherent system of production, exchange, and distribution. Property is a socially enforced group of economically valuable rights to the acquisition, use, and disposal of assets. It has important implications for the apportionment of wealth, income, and power in the economy and for incentives (relationships among economic agents). Motivation is the provision of incentives to economic units to engage in wealth-producing activities.
Economic institutions (agreed-upon ways of doing things) constitute the organizational core of an economy. They affect the manner in which resources are used (that is, how things are produced) and the ends toward which they are employed (that is, toward which alternative goals and for whose benefit resources are allocated). They do this by the way in which they distribute the power of decision over resources and goals. Institutions may be designed either to diffuse decision-making power among the economy's producing and consuming units and the government, or to concentrate that power in governmental hands.
Ideally, economic institutions should possess five attributes: coherence, economy, accuracy, flexibility, and acceptability. Coherence means that economic institutions work in concert rather than being at odds with each other. For example, if private property is to provide incentives to individual farm families, it cannot be restricted and neutralized by information in the form of administrative orders that limit the size of the farm and its sale, number of nonfamily workers that can be hired, acquisition of non-labor inputs, credit, and marketing of produce. Economy means that in fulfilling their functions, economic institutions should use the least amount of resources possible: ideally, the institutions would be costless. Accuracy means that the institutions should indicate precisely what needs to be done in the economy and the opportunity costs of alternative courses of action. Flexibility means that the institutions should be capable of instant adaptation to changes in resource (cost) and goal (utility) conditions. Acceptability means that the economy's organizational structure should not raise opposition from those who use it: ideally, acceptance should be given freely, rather than obtained by resorting to administrative constraint. Conceptually, using two workable extremes, the job of goal selection and attainment can be done either by the competitive market or by the central administrative command plan. Market is taken to mean voluntary, contractual, competitive, horizontal transactions carried out by individual, autonomous, property-owning buying and selling units for utility or profit-maximizing purposes, by consulting spontaneously generated price signals, through the disbursement of money votes. Plan is taken to mean the setting of mandatory general and specific goals by government officials regarding production, exchange, and distribution, as well as the outlining of procedures for attaining those goals (the goals and procedures being expressed in physical-technical and financial terms, and enforced primarily by administrative means). All significant means of production are government-owned, either directly (nationalization) or indirectly (nominal cooperativization).
The decentralized voluntary market and the centralized imperative plan are both market and plan systems, because in the process of goal selection and attainment, they harmonize (or claim to) individual and social interests. The market, by means of Bernard de Mandeville's and Adam Smith's Invisible Hand, is said to transform individual rational decisions into social rational ones (decentralized general equilibrium). Similarly, the plan, through Jean-Jacques Rousseau's general will or Lenin's all-knowing vanguard proletarian party (the Visible Hand), is said to separate social rational decisions into individual rational ones (centralized general equilibrium).
In reality, the Invisible Hand is stayed by externalities, increasing returns, monopolies, problems with public goods, complementarities, indivisibilities, less than full employment, and the "prisoners' dilemma. The Visible Hand demonstrably fails to bring about the congruence of social and private interest and to eliminate class conflict. The practical compromise emerging from this twin failure is the "mixed" economy, which combines elements of both market and plan. The market-plan mix varies considerably among real-life national economies, as does the mix of different market structures within market economies and the mix of indicative and imperative planning and planning levels (macro, micro) within planned economies. The proportions in which the ingredients of market and plan are mixed are of critical importance.
At some point in the market-plan mix, a systemic transition occurs: plan becomes market, and market becomes plan. This crossing of systemic borders is brought about by the marketization and privatization of major plan institutions (to use Chen Yün's simile in the epigraph to this book, the bird flies away), or, conversely, by the bureaucratization by the plan and socialization of the major market institutions. Marketization and privatization of the plan require decentralizing resource-use decisions and broad ownership rights over assets to the economy's basic producing and consuming units: individual firms and consumers (with consumers in the lead). In this condition, therefore, market demand determines the allocation of investment resources, and therefore, the pattern of production. Marketization and privatization of the plan presuppose a qualitative change in the plan's economic and legal philosophy: recognizing that the right of allocative decision originates in the private unit, rather than in "society" as manifested by government. More simply, the starting point of economic and legal reasoning is that the individual knows best what is good for him. Supplanting the market by the plan and socializing it involve a movement in the opposite direction, both in terms of ownership rights and the locus of resource-use decisions. Changes in economic institutions that result in a change of system we will call "reforms." Changes that do not bring about such a result (intrasystemic changes) we will call "adjustments." Put another way, reforms involve the manipulation of institutional-systemic variables; adjustment is confined to the use of policy variables within an established or slightly renovated institutional edifice.
Pure and Operational Plan Models
The selection and attainment of goals and the harmonization of private and public interests (the "allocative problem") ideally require internal consistency and optimality of decisions. Consistency is a physical problem of the correct fit of inputs and outputs, a concordance that hinges on technical coefficients. Optimality is an economic problem of cost minimization or output maximization (allocative or static efficiency); it requires scarcity (opportunity cost) prices for its determination. These prices, which reflect the marginal costs of goods and the marginal productivities of factors, may emerge spontaneously through the operation of competitive markets, or they may have to be deliberately constructed (made shadow prices) through linear programming.
Just as there are actual market models (imperfect competition, oligopoly) operating between the polar abstractions of perfect competition and pure monopoly, so too are there actual or operational plan models operating between the polar abstractions of perfectly centralized (electronic) planning and the supplemented market model (market socialism) and its close relative, the model of a labor-managed market economy.
Pure Plan Models
The model of perfectly centralized planning. This model, associated with Soviet mathematical economists L. V. Kantorovich, N. S. Nemchinov, and V. V. Novozhilov envisages the construction by the central planners of an internally consistent, optimal plan variant through use of a computer-assisted solution of very large numbers of simultaneous equations. The idea is to construct many variants of the plan based on different resource allotments and alternative technologies, the optimization criterion in a given period being (a) the minimization of resource outlays costs to obtain a given level and composition of output, or (b) the maximization of output for a given quantity and composition of inputs. The optimal plan can then be the basis for inputting rational (programming, opportunity cost, shadow) prices. Once the shadow prices are found, as they can be, all the planners need do is leave it up to all economic agents to reduce costs and increase output in accordance with those prices.
The model is impracticable at the present time for four reasons: (1) the very high computational cost involved in collecting and processing all the information needed from all the agents; (2) the probability that much of the information obtained will be inaccurate (this because in the absence of a foolproof system of incentives or a perfect Gleichschaltung of people [universal presence of the "socialist man"], people will play games with each other in the course of information exchange); (3) the planned system's demonstrated obsession with secrecy; and (4) the shortage of appropriate computer hardware. Planometrics, as the perfectly centralized plan is sometimes called, requires the diffusion of information through the system. In actual practice, however, plan directors regard information not as a right, but as a privilege; they release it on a need-to-know basis, the need being determined by themselves in very narrow terms. For these reasons, the quest for optimality through mathematical modeling assisted by high-memory computers has so far been limited in practice to determining the effectiveness of investment projects, foreign trade, and industrial location.
It might be added that, translated into actuality, the model of perfectly centralized optimal planning would perfectly serve the purposes of political autocracy.
The supplemented market model. This plan model is associated with Polish economist Oskar Lange. Its essence is that in a setting of relative scarcity of means to ends, consumers have freedom of choice, and planners must respect that choice. Consumer goods prices are free to fluctuate in the market, and consumers base their choices on those prices. Producing firms are guided by prices and profitabilities (that is, they equate marginal revenue with marginal cost). The planners are responsible for investment goods and industrial materials (for which there is no market), regulating stocks by raising and lowering prices in response to threatened shortages and abundance in a process of continuous tâtonnement.
This model is impracticable for six reasons: (1) the high computational cost of fixing producer goods and industrial materials prices; (2) the impermissible separation of the market for consumer goods from the apportionment of producer goods and materials ("a market for ends is unworkable unless there is a market also for means"); (3) the failure to take growth into account; (4) the absence of a credible discussion of motivation; (5) the assuming-away of externalities, complementarities, indivisibilities, and the like; and (6) the assumption that planners will always respond to threatened shortages and surpluses by raising and lowering prices, and that they will not try to foist their output preferences on consumers by determining the volume and assortment of consumer goods and by fixing appropriate prices to clear the shelves.
The model of the labor-managed market economy. This model has been elaborated by the American economist Jaroslav Vanek. It is said by its inventor to be of special applicability to the neomarket Yugoplan, and has the following major characteristics:
1. Participation. "The labor-managed economy is one based on, or composed of, firms controlled and managed by those working in them. This participation in management is by all and on the basis of equality, that is, on the principle of one-man one-vote" [pp. 8–9]. Alternatively, each voter is given the same number of points and is allowed to assign different weights to alternative issues to be decided upon simultaneously. This participation is to be carried out through elected representative bodies and officers: a workers' council, an executive board, and the director of the firm. It should be noted that participation in control and management derives exclusively from work in the enterprise, not from participation in ownership.
2. Income Sharing. After paying for all operational costs (expenditures for supplies, interest on capital, turnover tax, and other obligations), worker-participants share equitably in the net income (total profit) of the enterprise. Equity requires that payment be equal for labor of equal intensity and quality, and that it be governed by a democratically agreed-upon income distribution schedule. A collectively agreed-upon share of net income can be channeled into reserve funds, collective consumption funds, and investment funds. In the latter case, "it may be preferable to recognize the contributions of savings to the firm's capital formation as individual claims of each participant, and express them in the form of fixed interest-bearing financial obligations of the firm" [p. 10], such financial claims carrying, however, no right of control or management of the firm.
3. Property Structure. Worker-managers do not have full ownership of the capital assets they use. They can enjoy the fruits of production in which the assets were used, but must pay a rental fee for this, and they cannot destroy or sell the real assets and distribute the proceeds as current income. In turn, lenders of financial capital and lessors of physical assets to the firm have no right of control over the assets as long as the enterprise meets its debt-servicing obligations to them.
4. Other Institutional Arrangements. The labor-managed economy must be a fully decentralized market economy. In addition to the labor-managed firms, other decision-making units in the system (individuals, households, associations, the government) "decide freely and to their best advantage on actions they take, without direct interference from the outside. Economic planning and policy may be implemented through use of indirect policy instruments, discussion, improved information, or moral suasion, but never through a direct order to a firm or a group of firms" [p. 11]. Transactions among the various decision-making units are made through markets, which are perfectly free whenever there are many buyers and sellers relative to the total volume of transactions. Where monopolistic and monopsonistic situations occur, the government may intervene, but this intervention is limited to rendering the market structure more competitive by stimulating entry or opening up the market to international competition. The government may also fix minimum or maximum prices in such situations. The social preference function that emerges from such uninhibited market interaction among participants may be modified, but only through the use of "legitimate" instruments of economic policy, such as taxes.
5. Employment. The labor-managed economy is characterized by freedom of employment. This means that the individual is free to take, refuse, or leave a particular job, and enterprises are free to hire or not hire a particular worker. "However, the firms can, as a matter of their collective and democratic decision, limit in various ways their own capacity to expel a member of the community even where strictly economic considerations might call for doing so" [p. 12].
The advantages claimed for the theoretical model of a labor-managed economy are the following:
1. Economic self-determination by all who work reduces the worker's alienation from the product he produces and the exploitation by managers and owners of capital. Each employee becomes part worker, part manager. He is able to control both the product he makes and the conditions of work under which he produces his share of the product. In Vanek's words, the model has the merit of avoiding the "mutilation of men when used exclusively as mechanical factors of production" [p. 119].
(Continues…)
Excerpted from "Market and Plan Under Socialism"
by .
Copyright © 1987 Board of Trustees of the Leland Stanford Junior University.
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Table of Contents
List of Tables and Figures,
Acknowledgments,
Introduction,
PART I: CONCEPTS,
1. Market and Plan: Typology of Plan Models,
2. The Classical Plan: Stalinplan,
3. The Neoclassical Plan: Conservative and Liberal,
4. The Neoclassical Plan: Radical Maoplan,
5. Neomarket Yugoplan,
6. Additional Issues,
PART II: CASES,
7. USSR: The Role of Collective Farm Property in the Stalinplan and the Neoclassical Conservative Plan,
8. USSR: Information, Coordination, and Motivation in the Neoclassical Conservative Plan,
9. China: Stalinplan, Maoplan, Neoclassical Conservative Plan, and Beyond,
10. Hungary: Neoclassical Liberal Plan,
11. Yugoslavia: Workers' Self-Management and Market Syndicalism,
12. Summary and Conclusions,
Appendix A: Input-Output Tables and Their Relevance to Planning,
Appendix B: The Novosibirsk Document, Summer 1983 (Extracts),
Notes,
Bibliography,